At a time when majorities everywhere seem to believe that the market is imperfect and the government (the government each one thinks he would run, not the current one run by others) is perfect, America sometimes or perhaps often looks like a relatively enlightened spot. Compared to probably all advanced countries, a sizeable minority—if not sometimes a majority—of Americans hold opinions that are economically more realistic and more consistent with the ideal of a free society. Thanks to Peter Van Doren, editor of Regulation, for bringing to our attention a working paper titled “Price Gouging in a Pandemic” by Christopher Buccafusco (Yeshiva University School of Law), Daniel Hemel (University of Chicago Law School), and Eric Talley (Columbia Law School). The authors
Pierre Lemieux considers the following as important: Behavioral Economics, Buccafusco, Economic Philosophy, Free Markets, Hemel, Max Hayden, moral reasoning, Peter van Doren, Politics and Economics, price controls, Price gouging, price theory, Regulation, Shortage, Talley
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At a time when majorities everywhere seem to believe that the market is imperfect and the government (the government each one thinks he would run, not the current one run by others) is perfect, America sometimes or perhaps often looks like a relatively enlightened spot. Compared to probably all advanced countries, a sizeable minority—if not sometimes a majority—of Americans hold opinions that are economically more realistic and more consistent with the ideal of a free society.
Thanks to Peter Van Doren, editor of Regulation, for bringing to our attention a working paper titled “Price Gouging in a Pandemic” by Christopher Buccafusco (Yeshiva University School of Law), Daniel Hemel (University of Chicago Law School), and Eric Talley (Columbia Law School). The authors compared the results of a 1985 Canadian opinion survey on the “fairness” of increasing shovel prices by 33% following a big snowstorm with their own survey and (extensive) analysis of American opinion on the “fairness” of increasing prices of hand sanitizer by 33% in May 2020. In most American states, such an increase is forbidden during emergencies, as precisely documented by Buccausco et al.
While 82% of Canadians found this sort of increase unfair, the researchers report, “only” 47% of Americans did so. I may add that Canadian opinion is probably representative of the typical opinion in what used to be called the “free world.” This being said, the fact that the Canadian survey covered only two cities, Toronto and Vancouver, may have affected its representativity.
Strangely, nearly all Americans surveyed expressed a preference for rationing scarce supplies instead of auctioning them off, oblivious to the fact that auctioning is equivalent to letting the market determine prices, which a majority of them thought was not unfair! Perhaps this is just an instance of voters’ irrationality (the paradox of voting)? Still, three-fifths opposed any legal punishment to charging higher prices, which suggests that their preference for rationing was only a moral one—like when stores voluntarily reduce the number of items a customer can purchase in one visit.
These results must have something to do with the American tradition of individualism and liberty. I would conjecture that they are also related to the large proportion of Americans who have real business experience. This reminds me of a fascinating Wall Street Journal story featuring a 16-year-old American, Max Hayden, who, during the pandemic, purchased and resold scarce goods such as game consoles with a profit of $110,000 (see Sarah E. Needleman, “Sixteen Years Old, $1.7 Million in Revenue: Max Hits It Big as a Pandemic Reseller,” June 9, 2021; it’s well worth reading).
Max was able to do this—thus making sure that the scarce goods were going to those who valued them most as well as smoothing prices over time—without being sued or prosecuted by the government because, in New Jersey, goods deemed to be luxury goods are not hit by the “price gouging” legislation. His father, though, did not have a very enlightened opinion; the WSJ wrote:
Max’s father, whose name is also Max Hayden, said he was initially uncomfortable with his son’s business success because he benefited from a situation created by the health crisis. But he concluded that it was permissible because his son only resells luxury goods, not necessities.
“It’s a real distinction,” said Mr. Hayden, 61, “This is capitalism.”
Perhaps the older Mr. Hayden never reflected on the idea that letting each consumer decide what is a necessity or a luxury for himself is also capitalism, and so is moving goods in time—buying now for the purpose of reselling later when the anticipated price is anticipated to be higher. French economist Jean-Baptiste Say explained the last point two centuries ago. In A Treatise on Political Economy, Say wrote:
There is a further branch of commerce, called the trade of speculation, which consists iu the purchase of goods at one time, to be re-sold in the same place and condition at another time, when they are expected to be dearer. Even this trade is productive; its utility consist in the employment of capital, warehouses, care in the preservation, in short, human industry in the withdrawing from circulation a commodity depressed in value by temporary superabundance … so as to discourage its production, with the dcsign and purpose of restoring it to circulation when it shall become more scarce … The evident operation of this kind of trade is, to transport c0mnodities in respect of time instead of locality. If it prove an unprofitable or losing concern, it is a sign that it was useless in the particular instance, and that the commodity was not redundant at the time of purchase, and scarce at the time of resale.
The young Max Hayden was a successful entrepreneur and did not create “an unprofitable or losing concern.” As for the older Mr. Hayden’s moral concern, he was probably just caught in the conventional statist wisdom.
The paper by Buccafusco et al. also provides a good review of the debates on the economics and ethics of letting prices rise and fall with the conditions of supply and demand.